CXO Insights Article - Rajiv Menon on the Evolution of Technology Financing
“Now that the CIO (or the CTO) is a key executive on the CFO’s staff, communicating the strategic value of technology and the value that technology can bring to the business on an ongoing and long-term basis, becomes faster.”
Rajiv Menon, Managing Director, Asia Pacific, Japan & G China, at Cisco Capital
Over the last decade, how has tech financing evolved globally and in APJC?
Vendor financing has grown tremendously across the technology industry globally. This is reflected in Cisco Capital’s results. If you look at the other tech financing majors, you’ll see that they have grown as well. Some of the smaller tech players are now placing greater focus on financing or building financing capabilities as part of their business.
Within APJC, the growth rate has been faster than the rate for global growth. Vendor financing was not that broadly prevalent in APJC up until a decade ago. Cisco Capital set up shop in APJC back in 1998, but like with many other things, it takes a few years for business to accelerate. Over the last decade, we have grown tremendously.
Is there much more to tech financing beyond CapEx versus OpEx?
The short answer is ‘yes’. Tech financing, with respect to what Cisco Capital does, is about life cycle management for technology. More than CapEx versus OpEx, the question is really about how to manage the technology life cycle. Technology will continue to evolve at a blistering pace. So how do you manage that as an organization, over a 5 to 15 year period? That is really where organizations like Cisco Capital play a critical role.
The other aspect is Cisco’s financial strength, which can be gleaned from Cisco’s balance sheet, which is in the public domain. From a customer’s point of view, we have the ability to support them over the long term.
External studies tell us that customers are evaluating their options for tech investments right upfront — at what we would call stage zero or stage one of the sales cycle—they are evaluating how they pay for their technology. So for organizations like Cisco Capital, the go to market starts in those early stages where we show customers the options available to them with regard to technology acquisition.
Most businesses have recognized that technology is a business necessity. Yet technology- related spending tends to come down when economic conditions are not rosy. How do you address this paradox?
The answer lies in how critical or how strategic the organization considers technology to be to its long-term success. We have several examples where technology has helped create a fundamental competitive advantage, allowing Cisco customers to offer value-added services, or deliver the same benefits, but at a lower cost--it is a long list.
Once an organization gets to that point, and the dots get connected within the organization, technology doesn’t get affected in economic downturns or other cost-cutting times. For customers who don’t view technology strategically, spending drops in downturns – there’s no denying that.
Who makes the final technology investment decision at the customer’s end, the CIO or the CFO? Over the last 3–4 years, have you seen any change in that decision-making?
Thank you for asking this question. Look, the final decision maker will vary depending on the size of technology investment being planned and how it would be paid for.
But fundamentally, any money, any budget, in any organization in any form, whether it is CapEx or OpEx, comes from the CFO’s organization. We, of course, always engage with the CFO. We have noticed that in the last 3–4 years, increasingly, CIOs are reporting to CFOs. A Gartner and Financial Executives Research Foundation survey (Jul 2011) showed that 42 percent of IT organizations report directly to the CFO, and 33 percent of IT organizations are reporting to the CEO. Now that the CIO (or the CTO) is a key executive on the CFO’s staff, communicating the strategic value of technology and the value that technology can bring to the business on an ongoing and long-term basis, becomes faster.
What are the three main reasons why a customer would opt for financing from Cisco Capital?
Customers will opt to use us because we can be more competitive than banks and other financial institutions on financing Cisco solutions and of course whatever complementary products are required for that solution. That is one reason which would appeal to the CFO, whose focus is on the bottom line.
Secondly, as an integral part of Cisco, we can help our customers with life cycle management. Technology is not like earth-moving equipment that you put in place and sort of forget about for 20 years. ‘Change’ is constant in the technology world. So life cycle management is a critical element and we facilitate that very well.